Well, another week has past and another horrible record has been achieved. Earlier in this market downturn, we achieved the fastest correction (-10% or more) on record. Now, we’ve set another record … fastest to -30% or more.
Think about that for a moment. In January, we had record employment, low inflation, a Fed that was accommodating, and many more positives. In 22 trading days we are down over 30% … faster than the Great Depression, Great Recession, the Tech crash, etc… Everything collapsed, instantly.
Obviously none of us have experienced anything like this before. Most people are scared or, at a minimum, concerned. But unless you are retiring in the next couple of years or have just retired and living off your portfolio then this market crash is a great opportunity.
Yes, this is leaving a mark on 401(k)s, jobs, and income. I’m hoping those reading an article last April have cash at the ready. This market is not healthy and it’s movements are exaggerated. But since we are in the crisis, it matters more what we do now.
What Now?
You take advantage of this great opportunity and buy quality assets. In my 401(k), I’ve moved over $130,000 in cash to the stock market (both domestic and international). I’ve done this at various moments in the past 3 weeks but I’ve been buying. I’ve still got about $200,000 in cash to deploy if the market goes crazy down.
In my taxable account, I’ve added several new positions – Wells Fargo, Aflac, Pfizer, Altria – and added to my Coca-Cola and Exxon Mobil positions. Have I hit bottom on any trade? Of course not but I’m not concerned with that. I do my best to buy at good prices but the market has a way of exaggerating movements.
To time the market, you’ve got to be lucky twice. You have to know when to get out and when to get back in. Nobody is that smart or lucky. The only answer is to keep buying. Sure, it’s painful watching a recent $50 and $45 Coca-Cola purchase go down to $36 in a matter of days. But you have to keep buying quality stocks.
If I like Coca-Cola at $50 then I should love it at $36. And remember, I’m thinking 10 years in the future so today’s lower prices will be seen as a great opportunity. As I always tell my kids, don’t have the future you be pissed off at the past you for something you did or didn’t do.
Summary
You can’t prepare or predict for what has happened to the markets in the past month (or even past week). You can’t imagine a virus hitting the world PLUS an oil price war at the same time. You just can’t predict that. I was buying Exxon and others in January at depressed prices and I’m still buying … that’s what I can control. Again, if I liked Exxon at $65 then I should love it at $30, right?
Rather than stocking up on 3 years of toilet paper, redirect those funds into buying more Coca-Cola or Wells Fargo or Aflac. Take your pick of stocks because there are plenty of quality companies available at great prices. That’s what you can do when prices are down. Don’t panic sell … have cash available and plan to buy.
You can’t fix any mistakes you’ve made in the past but you can impact your future today. Get an exorcism, if needed, but get those past demons and mistakes out of your mind. Don’t let them paralyze you into panic selling or not buying more at reduced prices. Remember, things are on sale now.
401(k) UPDATE: Today, I moved $80,000 out of my 401(k) stock fund and back into cash. This leaves $75,000 of my 401(k) still in the market. Since the market has gone up 20% in 3 days, my 401(k) is close to breakeven. I thought it was a good chance to minimize risk. I’ve been buying on the way down for just this moment. If the market goes back down (highly likely, since I don’t think this will be a “V” market recovery) then I’ll go back into the market.
Thanks for reading!
Mr. TLR